Entrepreneurial Shareholder Activism: Hedge Funds and Other Private Investors
New York University (NYU) - Department of Accounting
University of Maryland - Robert H. Smith School of Business
AAA 2007 Financial Accounting & Reporting Section (FARS) Meeting Paper
ECGI - Finance Working Paper No. 140/2006
NYU Law and Economics Research Paper No. 06-41
1st Annual Conference on Empirical Legal Studies
We examine recent confrontational shareholder activism campaigns by hedge funds and by other private investors. The three main parallels between the groups are a significantly positive market reaction for the target firm around the initial Schedule 13D filing date, a further significant increase in share price for the subsequent year, and the activist's high success rate in gaining its original objective. The two main differences are the types of companies each group targets and the activists' post-investment strategies. Hedge funds target more profitable and healthy firms than other activists. Afterwards, hedge funds reduce the target's cash holdings by increasing its leverage and dividends paid. In contrast, other activists lower the target's capital expenditures and research and development costs. In total, we conclude that the activism benefits existing shareholders of the targeted firms, but that hedge funds and other entrepreneurial activists achieve these benefits through different outlets.
Number of Pages in PDF File: 73
Keywords: Hedge Fund, Activism, 13D
JEL Classification: G28, G34
Date posted: July 5, 2006 ; Last revised: June 24, 2008
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